Cancellation of a section

Posted: 13 November 2014

A real right of extension may be cancelled in terms of a bilateral notarial deed, in terms of Section 15B(1)(d) of the Act, and so too can an exclusive use area be cancelled in terms of section 27(5) of the Act, by virtue of a bilateral notarial deed. A question begging an answer is whether the Sectional Titles Act 95 of 1986 (“the Act”) provides for the cancellation of a section(s).

One can argue that an application can be brought for amendment of the sectional plans, in terms of section 14(1) of the Act to omit the section that is to be cancelled. However, section 14 can only be applied when the plans are incorrect, and therefore section 14 cannot be applied for purposes of cancelling a section. This matter was also discussed at the Registrars' Conference in 2011, as deeds registries and the offices of the surveyors general were inundated with requests to substitute sectional plans which were alleged to be incorrect.

Conference ruled that in Such instances a Court order must be obtained to substitute the plans (see RCR 58 of 2011 in this regard).

It is proposed that the procedure to be followed to cancel a section in a scheme, is that contained in Section 48 of the Act.

Section 48(1) to (3) reads as follows:

48 Destruction of or damage to buildings

(1) The building or buildings comprised in a scheme shall, for the purposes of this Act, be deemed to be destroyed

a) upon the physical destruction of the building or buildings;

(b) when the owners by unanimous resolution so determine and all holders of registered sectional mortgage bonds and the persons with registered real rights concerned, agree thereto in writing; or

(c) when the Court is satisfied that, having regard to all the circumstances, it is just and equitable that the building or buildings shall be deemed to have been destroyed, and makes an order to that effect.

(2) In any case where an order is made under subsection (1) (c), the Court may impose such conditions and given such directions as it deems fit for the purpose of adjusting the effect of the order between the body corporate and the owners and mutually among the owners, the holders of registered sectional mortgage bonds and persons with registered real rights.

(3) (a) Where the building or buildings is or are damaged or is or are destroyed within the meaning of subsection (1), the owners may by unanimous resolution, or the Court may by order, authorize a scheme -

(i) for the rebuilding and reinstatement in whole or in part of the building or buildings;

(ii) for the transfer of the interests of owners of sections which have been wholly or partially destroyed, to the other owners.

(b) In the exercise of their powers under this subsection, the owners may pass such resolution or the Court may make such order as they or it may deem necessary or expedient to give to the scheme, in connection with inter alia

(i) the application of insurance moneys received by the body corporate in respect of damage to or the destruction of the building or buildings;

(ii) the payment of money by or to the body corporate or by or to the owners or by or to one or more of them;

(iii) an amendment of the sectional plan so as to include in the common property an addition thereto or subtraction therefrom;

(iv) the variation of the quota of any section; or

(v) the imposition of conditions.”

One must bear in mind that it is not a requirement for a building or a section to be physically destroyed or damaged before section 48 can be applied. The building which includes a section or sections can be deemed to be destroyed when the owners in the scheme, by unanimous resolution, and all the holders of registered sectional mortgage bonds and persons with real rights registered over such section agree thereto in writing (section 48(1)(b)), alternatively, it can be referred to court and the court may make an order to that effect (section 48(1)(c).

One can argue that by making this resolution the whole scheme is deemed to be destroyed, therefore the requirement in sub-section (3)(a) that the owners may by unanimous resolution authorize a scheme for the rebuilding and reinstatement in whole or in part of the buildings, as well as for the transfer of the interest of the owners of affected sections to the other owners. They will therefore authorize the reinstatement of all the buildings except for that building or part of the building consisting of the section to be destroyed and to be “removed” from the sectional plan. The transfer of the interest of owners is not done by means of a formal deed of transfer, but by endorsement. The deeds office will automatically endorse the affected deeds and the section 11(3)(b) certificate to that effect.

It is evident from the above that two unanimous resolutions must be present, i.e. one for the buildings to be deemed to be destroyed, and another to authorize a scheme for the rebuilding and reinstatement of the buildings not so destroyed and for transferring of the interest as provided for in sub-section 3(a)(ii). Should the owners by unanimous resolution deem the buildings in a scheme to be destroyed and they do not authorize a scheme for the rebuilding and reinstatement of the building(s), then section 49 will take effect and the sectional plans will be cancelled and the scheme will be closed, subject to the provisions of section 49.

Section 49(1) of the Act reads as follows:

"49 Disposal on destruction of buildings

(1) When in terms of section 48 the building or buildings comprised in a scheme is or are deemed to be destroyed and the owners have by unanimous resolution resolved not to rebuild the building or buildings, the body corporate shall lodge with the registrar a notification in the prescribed form of such destruction and a copy of the relevant resolution of the owners as certified by two trustees of the body corporate.”

The requirement for the cancellation of a building or part of a building (alternatively a section) in terms of section 48, read with regulation 31, are as follows:

The notification in terms of regulation 31(1), by the body corporate, in accordance with prescribed Form X to Annexure 1 of the regulations. The deeds office will provide the notification with a BC – code and an office fee is payable;

lf applicable, a court order, i.e. for the buildings to be deemed destroyed, and for the rebuilding and reinstatement of a part of the building or buildings must be lodged. Where the owners have by unanimous resolution deemed the buildings to be destroyed, etc. then there will be no necessity for a court order;

The copy of the unanimous resolution of the owners that the buildings be deemed to be destroyed, and for the rebuilding and reinstatement of a part of the building or buildings, certified by two trustees must be lodged (section 48(1)(b). It can either be two separate resolutions or it may be combined into one;

Sectional mortgage bonds registered over the sections and the consent of the holders of those bonds for the buildings to be destroyed (section 48(1)(b). The bondholders must consent to the cancellation of the bond over the section or to the release of the section from the operation of the bond;

The title deeds of registered real rights over the affected sections) (regulation 312)) and the consent of the holders of those rights, for the buildings to be deemed to be destroyed (section 48(1)b). They must consent to the cancellation of the Section, and therefore the cancellation of the real right, because it is argued that a real right cannot exist without the section over which it was registered;

In terms of regulation 31 (2) and (3) the owner's copy of the title deed for which the section has been destroyed must be lodged and endorsed in terms of section 48(3)(a)(ii) of the Act;

In terms of regulation 31(2) of the Act an amended participation quota (PQ) schedule must be lodged which shall exclude reference to the section which has been destroyed. It must be noted that when the section is cancelled the PQ of that section is cancelled, resulting in the increase of the PQs of the remaining sections, therefore the necessity for the lodgement of the PQ schedule.

A transfer duty receipt must be lodged, as the body corporate is acquiring the area destroyed as additional common property.

If an Exclusive Use Area is linked to the destroyed unit and as a result of the destruction of the unit the owner is no longer a member of the body corporate, the provisions of section 27(4)(b) shall apply and the Exclusive Use Area shall vest in the body corporate.

No application must be made for the endorsement of the affected title deeds as the deeds office will automatically endorse the relevant deeds.

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